In our daily life, transaction costs lays everywhere. Just like relation of headquarters and boots on the ground, HQ makes decision for the entire army, boots on the ground needs to follow orders. Unfortunately, situations in a war zone changes every second, and for different unit have different circumstance that orders might not apply. Through all these message giving and receiving is where transaction cost lays.
Efficiency is the key factor in the modern economics. With technology development, information are spread less than seconds, but transaction cost still lays everywhere. There are some reasons for this matter. First, different situations might need different approach. Take Walmart for example, as the head of retailing stores, Walmart cares greatly on its supply efficiency. They monitor their inventory to decide how much supply they needed for their daily business. These decisions does not comes from their main company, they come from their own local office in order to adjust for situations.
Second, there is a might be a misrepresent in information. In 1958, a movement was took place in China called the Great Leap Forward. This movement was originally Mao's idea to catch with American economy. Due to the pressure that was coming from the central government, local government had to give fake numbers in order to please the central government. This cost the country's economy moving back wards. The transaction cost in this is that the hard pressure gives the wrong number that caused a misinterpret and a bad decision making. These situation could also occur in our modern day lives. Company wants to get their numbers up so they give the pressure down to their local agencies. If the local agencies give wrong numbers and the headquarter used it to make a decision, transaction cost would end up in a huge capital loss, or worse.
The third reason is that there are uncertainty and complexity in society that transaction cannot be ignored. For instance, when you buy insurance, different situation might be have different quotes. Insurance for a 2 door car are more than a 4 door car; an driver who has a license for many years pays less insurance than a driver who just got a license. Many area have all these kind of issues because their is no objective way to set up a credit to let others believe, only through subjective materials to make gain credit. Sales man set up their credit by talking with customers because in order to make a sale in a short period of time, the only thing that can set up a credit is through words. Transaction cost in such business is critical, so companies are trying their everything to promote their sales. Advertising and other methods are being used in this area.
Transaction cost are tightly connected with our lives. Governments, companies, universities are dealing with transaction cost as long as its operating. To lower transaction cost by using advanced technology is not enough. Different approach needs to be put in practice by management in order to lower the transaction cost as much as possible.
This essay echoed many of the the themes that have come up in the class discussion. That is good. But it doesn't seem to have any of your own experiences in it, which was the intent of the prompt. I appreciate your mention of the Great Leap Forward as another important example of where too much central decision making failed. Yet it happened before you were born.
ReplyDeleteSo I didn't learn much at all about you in this post and about your experiences with organizations. You must have some, either from China or from your time in the U.S. If that is hard to write about, let's see if we can find some way to make that less difficult for you. I've had Chinese students in the past who have written about their own schooling, for example. And some have written about where their parents work.
The value of the blog posts is in tying what we are studying to your own experiences. So I hope in future posts that you are able to do this in some way. It is an important part of the course and I'd like you to participate in it fully.